Remember the deficit? No one else does, either

It was just a few years ago that congressional Republicans, for the first time in American history, pushed the nation to the brink of default, holding the debt ceiling hostage and threatening to crash the economy on purpose unless President Obama met their demands. GOP leaders said the self-imposed crisis was absolutely necessary: the deficit was dangerously large, they said, so they felt compelled to prioritize deficit-reduction measures, by any means necessary.

It was a weird time. House Budget Committee Chairman Paul Ryan (R-Wis.), taken seriously by much of the Beltway, ran around arguing that Obama had created a “debt crisis.” GOP lawmakers routinely hit the Sunday shows, pointing to the deficit and crying that the president was turning the United States into Greece. Mitt Romney hit the campaign trail with a campaign-made “giant, green, glowing debt clock,” in order to focus voters on “the most pressing issue right now.”

It really wasn’t that long ago. And yet, here we are now, with Al Kamen asking a good question: “So whatever happened to the deficit?”

So what happened? Simple answer, of course, is that the deficit is way down and, for now, no longer a big problem.

This week’s Congressional Budget Office (CBO) estimate for the fiscal 2014 deficit is $492 billion, or 2.8 percent of gross domestic product, which is pretty much where it was back in the early part of the Bush II administration – though it’s expected to rise sharply in coming years.

Asked for comment, Douglas Holtz-Eakin, former CBO director and top economic policy adviser to the McCain/Palin campaign, told Kamen, “Collectively, Washington has done essentially nothing, unless you count stopping making it worse.”

This is surprisingly wrong.

Washington has actually done quite a bit, starting with the Recovery Act that helped end the Great Recession and started the economy growing again; which later led to deep spending cuts, which led last year to tax increases on the wealthy.

Collectively, these policy moves out of Washington sharply reduced the deficit. That’s not “essentially nothing”; it’s the opposite. We can (and should) debate whether this deficit reduction is good news – I believe it is not – but at a minimum, the conversation should be based on reality.

Paul Krugman’s take on the issue rings true: “The whole thing turns out to have been a false alarm…. In short, the debt apocalypse has been called off.”

I’m not sure whether most readers realize just how thoroughly the great fiscal panic has fizzled – and the deficit scolds are, of course, still scolding. They’re even trying to spin the latest long-term projections from the Congressional Budget Office – which are distinctly non-alarming – as somehow a confirmation of their earlier scare tactics. So this seems like a good time to offer an update on the debt disaster that wasn’t.

About those projections: The budget office predicts that this year’s federal deficit will be just 2.8 percent of G.D.P., down from 9.8 percent in 2009. It’s true that the fact that we’re still running a deficit means federal debt in dollar terms continues to grow – but the economy is growing too, so the budget office expects the crucial ratio of debt to G.D.P. to remain more or less flat for the next decade.

Things are expected to deteriorate after that, mainly because of the impact of an aging population on Medicare and Social Security. But there has been a dramatic slowdown in the growth of health care costs, which used to play a big role in frightening budget scenarios. As a result, despite aging, debt in 2039 – a quarter-century from now! – is projected to be no higher, as a percentage of G.D.P., than the debt America had at the end of World War II, or that Britain had for much of the 20th century. Oh, and the budget office now expects interest rates to remain fairly low, not much higher than the economy’s rate of growth. This in turn weakens, indeed almost eliminates, the risk of a debt spiral, in which the cost of servicing debt drives debt even higher.

As for all of the folks on the right whose rhetoric now appears pretty silly in retrospect, can we look forward to their explanations as to why they got the issue so very wrong?